WEBVTT - Julia Coronado and Constance Hunter Talk Markets

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>This is a joy.

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<v Speaker 3>This is something Paul's demanded that we get from macro

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<v Speaker 3>policy perspectives. Constant Hunter in here with Julia Cornado and

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<v Speaker 3>Taviam Paul in this day is just you know, I

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<v Speaker 3>just think that killer Julia does this shift Powell's discussion

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<v Speaker 3>of the character of our disinflation.

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<v Speaker 2>This stunning report.

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<v Speaker 4>I think it's an important report. I think Chair Powell

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<v Speaker 4>is likely to express some optimism that progress has resumed

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<v Speaker 4>after a disappointing first quarter and that the plan to

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<v Speaker 4>lower rates is on track. We think that they'll come

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<v Speaker 4>out with a two cut baseline. This report sort of

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<v Speaker 4>solidifies that we think that Chair Powell sort of has

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<v Speaker 4>that control over the median and the message, and that

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<v Speaker 4>he can sort of credibly express optimism, say that we

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<v Speaker 4>saw some broad based progress in today's report after a

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<v Speaker 4>d since April. So if we get a few more

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<v Speaker 4>prints like that, then they can begin a process. The

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<v Speaker 4>FED is now having to deal with the decision of

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<v Speaker 4>do we start early so that we can go slow,

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<v Speaker 4>or do we wait till weakness arrives, which is the

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<v Speaker 4>track record of central banks right wait till weakness arrives

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<v Speaker 4>and then cut quickly. This is a new approach or

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<v Speaker 4>a relatively untested left roach.

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<v Speaker 3>Because she knows I'm going to go mental, yes, put surveillance.

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<v Speaker 5>There's a lot of folks out there that says this

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<v Speaker 5>FED is already behind the curve, that they should be

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<v Speaker 5>cutting already. Do you, guys, how do you think about that?

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<v Speaker 1>I think that that is a valid perspective, But of

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<v Speaker 1>course they also have there's people who are saying that

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<v Speaker 1>there's going to be no landing, that the FED isn't

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<v Speaker 1>going to cut it all this year. So I think

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<v Speaker 1>I understand the perspective of the FED of deciding to wait,

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<v Speaker 1>given the prints that we had in the beginning of

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<v Speaker 1>the year, and given the fact that we're seeing anomalies

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<v Speaker 1>in the CPI data that we didn't see prior to

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<v Speaker 1>the pandemic. And so I think from their perspective, you know,

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<v Speaker 1>caution is the better part of valor. On the other hand,

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<v Speaker 1>as Julia said, historically they are late, and so I think.

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<v Speaker 6>That they do run that risk.

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<v Speaker 1>Fortunately, the jobs print last week was stronger than expected.

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<v Speaker 1>But our big concern if they're late is that labor

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<v Speaker 1>market starts to weaken and once you see that it's

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<v Speaker 1>too late because it is at best a coincident indicator.

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<v Speaker 5>Right, And Julie, I mean Joe Wisenthal from a Bloomberg

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<v Speaker 5>Onlins podcast just moments ago, said, you know, raising some

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<v Speaker 5>concerns about the labor market here that we you know,

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<v Speaker 5>four percent, You get paid attention to that kind of number.

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<v Speaker 5>So how do you feel about labor?

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<v Speaker 4>Yeah, no, I think that the the May employment report

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<v Speaker 4>was truly mixed, right. We the payroll number is strong,

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<v Speaker 4>it was broad based, but the household survey is showing

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<v Speaker 4>rising slack. You have to take that message at face value.

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<v Speaker 4>The fact that we have gone from a low of

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<v Speaker 4>three point four to four point zero. It's still a

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<v Speaker 4>low unemployment Rate's still a healthy job market, but you know,

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<v Speaker 4>it is not a more balanced than it was before.

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<v Speaker 4>There are risks on both sides now. And as Constance said,

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<v Speaker 4>if you keep restrictive policy in place for too long.

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<v Speaker 6>Then you're going to lose that resilience.

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<v Speaker 4>So even actually Governor Waller said this earlier this year.

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<v Speaker 4>He said, you know, the low hanging fruit of bringing

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<v Speaker 4>down job openings, you know, without a rise in unemployment

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<v Speaker 4>is probably behind us. To really see a decline in

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<v Speaker 4>labor demand from here, you're going to get that alongside

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<v Speaker 4>a rise in unemployment.

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<v Speaker 2>Yeah, we're going to come back.

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<v Speaker 3>But it's just a joy to have Constance Hunter and

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<v Speaker 3>Julia Cornetta with us.

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<v Speaker 2>But I got one fundamental question. Are we more than

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<v Speaker 2>ever John.

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<v Speaker 3>Edwards in Louisiana as you were studying in Texas? Are

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<v Speaker 3>we more than ever? Two Americas? And the idea idea

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<v Speaker 3>of aggregate analysis that the echos building is just quaint.

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<v Speaker 4>You know, I think there are always lots of Americas?

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<v Speaker 2>But is there more now? Is it more polarized now in.

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<v Speaker 4>Terms of politically, Absolutely, we're in a very ecomorize economically.

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<v Speaker 6>No, I would say, Tom, Actually the good news is.

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<v Speaker 4>That we're less polarized economically in a sense that the

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<v Speaker 4>lower wage workers have the best labor market they've seen

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<v Speaker 4>in generations this cycle, and it hasn't cracked yet. Really,

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<v Speaker 4>the weakness we see in the labor market is at

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<v Speaker 4>the top. It's the professional service sector jobs that are

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<v Speaker 4>experiencing the weakness. So no, I would say, actually, we've

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<v Speaker 4>seen a narrowing and wage inequality this cycle that we

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<v Speaker 4>haven't seen in thirty years.

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<v Speaker 3>It's just a bang up day here folks, if Jim

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<v Speaker 3>Bullard with us, the former president of Saint Louis, FED

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<v Speaker 3>and here for a half hour Julia cordontto with us

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<v Speaker 3>in Constance hunder a micro policy perspectives to get us

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<v Speaker 3>towards the FED meeting this after noon, most importantly at

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<v Speaker 3>ten o'clock, Paul Sweeney will drive forward with Alex Steele.

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<v Speaker 3>I mean you got you got something to talk about

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<v Speaker 3>it after this.

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<v Speaker 5>Inflation report, got got get a very interesting inflation report,

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<v Speaker 5>very something very important for the FED to take into

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<v Speaker 5>consideration here as we hear from the FED. And you're

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<v Speaker 5>gonna have full coverage this afternoon, right tom starting.

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<v Speaker 2>Can I go? Can I go? Odd?

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<v Speaker 3>Sure?

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<v Speaker 2>Mexican paeso weakness.

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<v Speaker 5>I don't know where to go.

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<v Speaker 3>There is just stunning. We have Juliet Cornado in the room.

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<v Speaker 3>You think we should go all Mexican pa.

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<v Speaker 5>I want to do that.

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<v Speaker 6>Yeah. And there it is politics for you, yes, exactly.

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<v Speaker 4>And the bond market action we saw in France yesterday,

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<v Speaker 4>you know, on just a rumor, there's a lot of uncertainty.

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<v Speaker 3>What a joy to have us here for a half

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<v Speaker 3>hour Julia Cornado and Constance hunder of micro policy perspectives Constant.

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<v Speaker 3>You know, I love Neil Daddy. He doesn't mince words.

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<v Speaker 3>May I quote Paul It does not take a rocket

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<v Speaker 3>scientist to figure out what needs.

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<v Speaker 2>To be done.

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<v Speaker 3>Yeah, and he's like, let's go. So FED needs to

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<v Speaker 3>get on with it. Constance, what are they waiting for?

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<v Speaker 3>I mean, I get at their ex post. You know,

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<v Speaker 3>with an act, we all know this. Can we really.

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<v Speaker 2>Hope for a new regime where they get on with it?

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<v Speaker 1>I mean, one thing that is going to hold them

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<v Speaker 1>back is that shelter print. Now that was isolated to

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<v Speaker 1>New York rents which went up and played an oversized part.

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<v Speaker 3>No, no, no, no, how much did two blocks in New Jersey

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<v Speaker 3>play point?

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<v Speaker 5>Yes?

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<v Speaker 3>Was are you telling me national inflation was Paul Sweeney's

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<v Speaker 3>housing fault?

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<v Speaker 1>I think it was Paul Sweeney's fault in particular.

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<v Speaker 6>Yeah, yeah, he used to blame.

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<v Speaker 1>You should get all the hate mail, you know, But seriously,

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<v Speaker 1>they're gonna need to see that shelter number come down

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<v Speaker 1>a bit. And you know, but I don't disagree. Look

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<v Speaker 1>that September has to be firmly on the table. The

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<v Speaker 1>markets believe it's firmly on the table, and even fed

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<v Speaker 1>that's a little bit behind, should be able to move

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<v Speaker 1>in September.

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<v Speaker 3>Jey, how do you.

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<v Speaker 5>Think about the US consumer here, Because we're getting inflation's

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<v Speaker 5>coming down, but it's still at that high reset level

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<v Speaker 5>of nineteen percent versus twenty nineteen. How's the US consumer

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<v Speaker 5>doing today?

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<v Speaker 4>Look, I'll reframe it this way. We should thank the

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<v Speaker 4>US consumer because one thing we keep hearing in earnings

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<v Speaker 4>reports and in the FEDS Beage book is that consumers

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<v Speaker 4>are priced sensitive. Again when we look at things like

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<v Speaker 4>goods prices broad based deflation, consumers want deals and they're

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<v Speaker 4>getting them on cars, on furniture, and on apparel this month,

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<v Speaker 4>so airfares on airfares, airfares plunged, So consumers are back

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<v Speaker 4>to that norm that they had before the pandemic of

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<v Speaker 4>to part with my money, you're going to have to

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<v Speaker 4>offer me value, and that is helping restore healthy inflation dynamics.

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<v Speaker 4>So they might still be grumpy from what we've all

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<v Speaker 4>been through, and we also, as Tom had alluded, to

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<v Speaker 4>see a lot of polarization in those sentiment numbers, but

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<v Speaker 4>you know the reality is that consumers have taken control

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<v Speaker 4>back that pricing power that companies enjoyed during the pandemic

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<v Speaker 4>has evaporated and now.

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<v Speaker 6>They need to deliver values. So some of those margins

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<v Speaker 6>are going to get pressed.

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<v Speaker 3>We had a GDP number first quarter. Where are we

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<v Speaker 3>one point three, one point four percent? Whatever Atlanta GDP

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<v Speaker 3>balloons out four percent?

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<v Speaker 2>I think, bring it back. Now we're running what's the

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<v Speaker 2>run rate? To both of you? What's do you? I mean,

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<v Speaker 2>do you guys argue about this? What's the run rate?

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<v Speaker 2>Unreal GDP? Are you that far apart the two of you?

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<v Speaker 4>I don't know.

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<v Speaker 6>I think so.

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<v Speaker 1>I think we're at both at about two point four

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<v Speaker 1>two point five. I mean, you have to look at

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<v Speaker 1>GDI when you look at this, and last last quarter

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<v Speaker 1>was really trade in inventories, right, and so the question

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<v Speaker 1>is how much are those inventories going to be rebuilt?

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<v Speaker 1>That's a very tricky thing to forecast. And then obviously

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<v Speaker 1>we have this strong dollar which is hurting trade in

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<v Speaker 1>some respects, but we also see tailwinds from the global

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<v Speaker 1>economy that we haven't seen for four years that could

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<v Speaker 1>slightly help our trade numbers.

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<v Speaker 3>I mean, it comes down to domestic final sales. What's

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<v Speaker 3>twelve months for mean, Julie, you were a BMP peribot

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<v Speaker 3>years ago, making headlines on this, what's domestic final sales

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<v Speaker 3>look like one year out? Don't give me this gloom stuff.

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<v Speaker 6>No, it's not gloomy.

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<v Speaker 4>I think we're both very constructive on a better productivity cycle,

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<v Speaker 4>not just because of AI. AI hasn't even begun to

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<v Speaker 4>enter the room yet. This is about a healthier labor market.

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<v Speaker 4>We've entered the stock market room, but not necessarily the

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<v Speaker 4>productivity numbers.

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<v Speaker 6>It is a bit.

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<v Speaker 4>We've had a strong investment cycle, We've had a good

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<v Speaker 4>labor market, good matching of employers and employees, and it's

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<v Speaker 4>we're not deleveraging. Last cycle was all about deleveraging and

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<v Speaker 4>global fragility and financial fragilities. And we have strong balance

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<v Speaker 4>sheets and a healthy, broad based economy. So I think

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<v Speaker 4>we are pretty constructive. That we've got a better productivity trend.

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<v Speaker 4>We've got immigration, at least for now. That's going to

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<v Speaker 4>be a big policy differentiator in.

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<v Speaker 6>Twenty twenty five. But for now, the.

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<v Speaker 4>US economy looks like it can run, you know, above

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<v Speaker 4>two percent UH and not generate inflation.

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<v Speaker 3>Apple's up nine since the gloom of the AI presence.

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<v Speaker 6>Actually that's true.

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<v Speaker 5>Nine This is just the a I bump that everybody

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<v Speaker 5>was looking for and they got.

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<v Speaker 6>I probably did too expensive.

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<v Speaker 5>But here we go up higher again.

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<v Speaker 2>So there you go.

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<v Speaker 6>Very good, very good file.

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<v Speaker 1>Actually good for now I need to start trimming that position.

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<v Speaker 5>Just loading and up by the momentum constance. What do

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<v Speaker 5>you what would you like to hear from the FED

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<v Speaker 5>chairman today versus maybe what do you think we will

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<v Speaker 5>hear from the FED chairman?

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<v Speaker 1>Yeah, that's that's a great question. I mean, I'd like

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<v Speaker 1>to hear him say that they as long as inflation

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<v Speaker 1>is making progress towards two percent, that it will be

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<v Speaker 1>appropriate for them to take away some policy tightness. And

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<v Speaker 1>let's remember where where is our star. Let's say it's higher,

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<v Speaker 1>Let's say it's three and a half, right and a half.

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<v Speaker 1>Let's say it's there. They can start cutting and still

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<v Speaker 1>be restrictive. And so I'd like that message of we

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<v Speaker 1>can start cutting and policy will still be restrictive.

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<v Speaker 3>Okay, So economic historian from the University of Texas, is

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<v Speaker 3>there any heritage that we do that besides a green

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<v Speaker 3>spanning and measured after after the fact, I don't observe.

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<v Speaker 3>I mean Richard Timberlake at Georgia or mcteera Dallas Fed

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<v Speaker 3>years ago.

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<v Speaker 6>No, there's no history. The history.

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<v Speaker 4>The history of what you you just noted is green

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<v Speaker 4>span is the mid nineties, mid and late nineties where

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<v Speaker 4>they kind of ebbed and flowed the FED funds right,

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<v Speaker 4>it went up, it went down, it went up, it

0:11:40.840 --> 0:11:44.480
<v Speaker 4>went down and without recession, and it was about fine

0:11:44.520 --> 0:11:45.720
<v Speaker 4>tuning and keeping the experience.

0:11:45.760 --> 0:11:48.880
<v Speaker 3>Does he have to address that today? Is the garden company?

0:11:48.960 --> 0:11:49.960
<v Speaker 3>He addressed it.

0:11:52.280 --> 0:11:54.599
<v Speaker 4>The Bloomberg reporters in the room and ask him that

0:11:54.679 --> 0:11:57.199
<v Speaker 4>bad question because they need to have a strategy.

0:11:57.200 --> 0:11:58.400
<v Speaker 6>That's the one they've been rich.

0:11:58.480 --> 0:12:01.720
<v Speaker 2>Take a memo corn out one to tell what was saying.

0:12:02.640 --> 0:12:04.840
<v Speaker 1>Well, and you brought up McTeer and he was the

0:12:04.880 --> 0:12:08.200
<v Speaker 1>one arguing for the productivity revolution. He was the one

0:12:08.320 --> 0:12:11.880
<v Speaker 1>arguing saying, we're going to be getting productivity and we

0:12:11.920 --> 0:12:14.360
<v Speaker 1>need to we need to make sure that we don't

0:12:14.559 --> 0:12:17.080
<v Speaker 1>raise rates into this stronger GDP because if you recall

0:12:17.120 --> 0:12:19.440
<v Speaker 1>in the second half of the nineties, GDP started to

0:12:19.520 --> 0:12:23.280
<v Speaker 1>gain momentum after those three rates while inflation fell.

0:12:24.000 --> 0:12:26.000
<v Speaker 5>The nineties late nineties were very good to me, they

0:12:26.000 --> 0:12:31.040
<v Speaker 5>weren't so Julia, you know, I'm trying to explain to

0:12:31.320 --> 0:12:33.240
<v Speaker 5>my kids are in the workforce now that this is

0:12:33.280 --> 0:12:36.520
<v Speaker 5>a more normalized rate environment. That's your stuff we live

0:12:36.559 --> 0:12:38.920
<v Speaker 5>through before. Is that kind of where we are now

0:12:39.080 --> 0:12:41.080
<v Speaker 5>we're back to normal? I guess I hope. So.

0:12:41.280 --> 0:12:43.280
<v Speaker 4>I mean, I think we've got or in a positive

0:12:43.320 --> 0:12:46.480
<v Speaker 4>real rate environment. It looks like the economy can handle that.

0:12:46.600 --> 0:12:49.960
<v Speaker 4>So I agree, our star is probably higher. That's where

0:12:50.000 --> 0:12:52.840
<v Speaker 4>we wanted to end up, right, That's what the whole

0:12:52.920 --> 0:12:56.080
<v Speaker 4>idea of the last strategy review at the FED was

0:12:56.160 --> 0:13:00.040
<v Speaker 4>about engineering a somewhat higher run rate on inflation and

0:13:00.280 --> 0:13:04.320
<v Speaker 4>gaining some policy space. And I think signs are that

0:13:04.360 --> 0:13:07.360
<v Speaker 4>we're that's exactly where we're heading. That will give them

0:13:07.360 --> 0:13:09.800
<v Speaker 4>better trade offs. I know, I know I'm going to

0:13:09.840 --> 0:13:12.160
<v Speaker 4>say this, and people's heads aren't going to explode. We've

0:13:12.160 --> 0:13:14.800
<v Speaker 4>got a better mix of fiscal and monetary policy.

0:13:14.840 --> 0:13:15.000
<v Speaker 2>Now.

0:13:15.040 --> 0:13:18.640
<v Speaker 6>Of course, six percent deficits are not sustainable forever, but

0:13:19.440 --> 0:13:20.760
<v Speaker 6>you know what we have had.

0:13:20.640 --> 0:13:24.000
<v Speaker 4>Is better state in local government, better fiscal participation. The

0:13:24.040 --> 0:13:27.160
<v Speaker 4>FED isn't carrying all the water for the economy.

0:13:27.640 --> 0:13:30.000
<v Speaker 3>You guys aren't allowed to travel together for safety, but

0:13:30.640 --> 0:13:33.280
<v Speaker 3>and you guys talked about how you adjust your FED

0:13:33.360 --> 0:13:35.280
<v Speaker 3>calls seriously to the end of the year. Did you

0:13:36.040 --> 0:13:38.880
<v Speaker 3>make a switch this morning when you publish for Macro

0:13:38.960 --> 0:13:42.080
<v Speaker 3>Policy Perspectives and you know switch this morning.

0:13:42.280 --> 0:13:45.600
<v Speaker 4>I think what we've been flagging for our clients is that,

0:13:45.760 --> 0:13:49.440
<v Speaker 4>you know, the outcome of today's meeting and the tone

0:13:49.480 --> 0:13:52.040
<v Speaker 4>and the tenor is going to depend on this morning's data.

0:13:52.440 --> 0:13:55.240
<v Speaker 4>It is an important data point and if we get

0:13:55.280 --> 0:13:58.640
<v Speaker 4>what we were below consensus on inflation, it came in

0:13:59.360 --> 0:14:02.560
<v Speaker 4>at our actually even a little bit below our forecast,

0:14:02.640 --> 0:14:07.320
<v Speaker 4>but that that would lean towards a more positive, constructive

0:14:07.400 --> 0:14:09.359
<v Speaker 4>message that we're going to start in September.

0:14:09.520 --> 0:14:11.200
<v Speaker 6>So I think that that's where we're at.

0:14:11.320 --> 0:14:16.320
<v Speaker 4>The data has ratified that orientation, and now it's up

0:14:16.360 --> 0:14:17.880
<v Speaker 4>to Share Powell to deliver the message.

0:14:17.880 --> 0:14:20.360
<v Speaker 3>And Ian Lingen is a third of a way to

0:14:20.440 --> 0:14:22.960
<v Speaker 3>a stunning call in the ten year yield YEP four

0:14:23.000 --> 0:14:25.200
<v Speaker 3>point two eight percent. I'm not saying it's going to

0:14:25.320 --> 0:14:28.360
<v Speaker 3>drive lower, but that's what Demo Capital Markets is saying

0:14:28.480 --> 0:14:29.240
<v Speaker 3>YEP exactly.

0:14:29.600 --> 0:14:32.720
<v Speaker 5>So where's constance? Where are you guys thinking about GDP

0:14:32.880 --> 0:14:35.080
<v Speaker 5>this year, next year? How is this economy going to

0:14:35.080 --> 0:14:36.080
<v Speaker 5>be growing?

0:14:36.400 --> 0:14:38.640
<v Speaker 1>Yeah, So we had originally been thinking we would have

0:14:38.680 --> 0:14:41.600
<v Speaker 1>a soft patch this year because higher rates would begin

0:14:41.680 --> 0:14:44.800
<v Speaker 1>to take a bite out of growth. And now we're

0:14:44.800 --> 0:14:48.880
<v Speaker 1>thinking that if the FED can act and that in time,

0:14:49.200 --> 0:14:51.480
<v Speaker 1>that that may be able to be avoided. And part

0:14:51.480 --> 0:14:53.480
<v Speaker 1>of the reason that's going to be avoided is this

0:14:53.560 --> 0:14:56.880
<v Speaker 1>productivity story that Julia was talking about earlier, right, and

0:14:57.440 --> 0:14:59.160
<v Speaker 1>all of the aspects of that that are.

0:14:59.040 --> 0:14:59.920
<v Speaker 6>Playing out in the ECONO.

0:15:00.520 --> 0:15:02.960
<v Speaker 1>So we're looking for a little softer than last year

0:15:03.400 --> 0:15:06.200
<v Speaker 1>and then a little bit of a pickup probably in

0:15:06.240 --> 0:15:08.640
<v Speaker 1>the second half of twenty twenty five as lower rates

0:15:09.160 --> 0:15:10.760
<v Speaker 1>continue and feed into growth.

0:15:10.960 --> 0:15:15.440
<v Speaker 3>Wa too optimistic constant Juliet cornerdo micro policy perspectives?

0:15:15.520 --> 0:15:16.360
<v Speaker 2>Can we do this again?

0:15:16.640 --> 0:15:17.240
<v Speaker 3>Is yeah?

0:15:17.280 --> 0:15:18.720
<v Speaker 2>Thank you, Thank you so much